After World War II, many financial (and other) markets were forced to create so called Central Securities Depositories (CSD:s) in order to be able to handle soaring volumes of trade. A Central Securities Depository may be defined in the following manner: a facility (or an institution) for holding securities, which enables securities transactions to be processed by book entry. Physical securities may be immobilised by the depository, or securities may be dematerialised (i.e. they will exist only as electronic records). In addition to safekeeping, a central securities depository may incorporate comparison, clearing, and settlement functions.
Early examples of CSD:s are Frankfurter Kassenverein, DTC (New York), Sicovam (Paris) and Euroclear (Brussels).
Early CSD:s were based on the principle of joint centralised storage of certificates (immobilised securities). Holdings of securities were recorded in a book-entry system. Physical delivery of securities from seller to buyer was replaced by book entry transfer of the securities from seller's bank's account in the CSD to the account of buyer's bank. Participants in a CSD are market participants, e.g. brokers and banks, and in some cases also institutional investors.
Later CSD:s have in some cases handled dematerialised securities, i.e. issues that only exist in electronic form. The Nordic countries are examples of markets where securities—bonds and shares—in paper form no longer exist. The systems and procedures in a dematerialised CSD are similar to those of an immobilised CSD as outlined above.
Today more than 150 CSD:s exist around the world. Globalisation has led to an increase in cross-border trading, as well as consolidation of securities markets and the underlying infrastructure such as CSD:s. This means that more and more CSD:s serve the securities and the participants of more than a single particular market.
The main functions of a CSD are:                Registration of securities and ownership to securities        Clearing and settlement of trades in securities        Asset services (also sometimes referred to as corporate actions), e.g. payment of dividend or interest        Other services, e.g. collateral management for participants.        
Clearing (or clearance) can be defined as the process of transmitting, reconciling, and, in some cases, confirming payment orders or security transfer instructions prior to settlement, possibly including the netting of instructions and the establishment of final positions for settlement.
Settlement can be defined as an act that discharges obligations in respect of funds or securities transfers between two or more parties.
CSD:s are based on automated Information Technology (IT) systems—most of which systems are tailored to the traditions and procedures of their home market. Globalization, consolidations among market participants and changes in investment patterns have resulted in a number of add-ons to these systems due to new requirements, for example new types of securities with special functions, or payments in foreign currency.
Clearing and settlement can take place in a number of different ways. Trades can be settled trade for trade (gross settlement), or in a batch where some sort of netting is described. An important principle that is often used is the principle of delivery versus payment (dvp). This means that if payment is made, the buyer can be absolutely certain that the securities are delivered.
The many changes and additions to settlement systems cause problems for CSD:s because it is difficult to change the IT systems to a structure that differs significantly from the original system requirements.